UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31,
1997.
Commission file number 0-1388:
WATERS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter.)
Minnesota 41-0832194
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2411 Seventh Street NW
Rochester, Minnesota 55901
(Address of principal executive offices)
(507) 288-7777
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding
12 months and (2) has been subject to such filing requirements for the past
90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common
stock, as of the latest practical date:
Common Stock, $.10 Par Value -- 1,462,271 shares outstanding as of
May 14, 1997.
Transitional Small Business Disclosure Format (check one):
Yes ___ No __X__
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
WATERS INSTRUMENTS, INC.
Statement of Operations
(Thousands, except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
For The Three Months For the Nine Months
Ended March 31, Ended March 31,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET SALES $ 3,570 $ 3,623 $ 10,093 $ 9,792
COST OF GOOD SOLD 2,481 2,579 7,034
6,937
GROSS PROFIT 1,089 1,044 3,049
2,855
OPERATING EXPENSES
Administrative 324 358 998 1,094
Selling 465 400 1,240 1,187
Research and Development 128 159 370
340
Total Operating Expenses 917 917 2,608
2,621
OPERATING INCOME 172 127 441
234
OTHER INCOME (EXPENSE)
Net Interest Income (Expense) 19 9 62
31
Net Other Income (Expense) 29 (4) 22
(10)
INCOME BEFORE INCOME TAX 220 132
525 255
INCOME TAX PROVISION 84 21 207
39
NET INCOME 136 111 318 216
EARNINGS PER COMMON SHARE $ 0.09 $ 0.08 $
0.22 $ 0.15
Weighted Average Number of
Shares Outstanding 1,462,271 1,462,271
1,462,271 1,462,271
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
WATERS INSTRUMENTS, INC.
Balance Sheet
(Thousands)
<CAPTION>
<S> <C> <C>
March 31, June 30,
1997 1996
(Unaudited) (Unaudited)
Current Assets
Cash & Cash Equivalents $ 1,354 $ 964
Net Trade Receivables 1,899 2,153
Note Receivable - 188
Inventories 1,858 2,033
Prepaid Items 38 33
Deferred Income Taxes 250 280
Total Current Assets 5,399 5,651
Fixed Assets
Property, Plant & Equipment 4,643 4,218
Less Accumulated Depreciation (3,120) (2,876)
Net Fixed Assets 1,523 1,342
Other Assets 3 3
Goodwill 85 98
TOTAL ASSETS $ 7,010 $ 7,094
Current Liabilities
Current Maturities of Long-Term Debt $ 4 $ 11
Accounts Payable 665 903
Accrued Salaries, Wages, and Other Compensation 557 505
Product Warranties 229 305
Accrued Other Expenses 131 204
Total Current Liabilities 1,586 1,928
Long-Term Debt, Less Current Maturities 3 5
Deferred Income Taxes 5 5
TOTAL LIABILITIES 1,594 1,938
Shareholders' Equity
Common Stock 146 146
Additional Paid-in Capital 1,246 1,246
Retained Earnings 4,024 3,764
TOTAL STOCKHOLDERS' EQUITY 5,416 5,156
TOTAL LIABILITIES & EQUITY $ 7,010 $ 7,094
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
WATERS INSTRUMENTS, INC.
Statement of Cash Flows
(Thousands)
<CAPTION>
<S> <C> <C>
For the Nine Months
Ended March 31
1997 1996
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATIONS
Cash received from customers $ 10,337 $ 10,017
Interest received 64 40
Cash provided from operations 10,401 10,057
Cash paid to suppliers and employees 9,516 9,884
Taxes paid 189 209
Interest paid 2 9
Cash disbursed from operations 9,707 10,102
Net cash provided (used) for operations 694 (45)
CASH FLOWS FROM INVESTING
Net acquisition of fixed assets (425) (307)
Decrease in other assets - -
Net cash used for investing (425) (307)
CASH FLOWS FROM FINANCING
Notes Receivable 188 -
Reduction of Long-Term Debt (9) (70)
Cash Dividend Payment (58) (58)
Net cash used for financing 121 (128)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 390
(480)
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 964
1,241
CASH AND CASH EQUIVALENTS-END OF PERIOD $ 1,354 $
761
RECONCILIATION OF NET INCOME TO
NET CASH FROM (USED FOR) OPERATIONS:
Net Income $ 318 $ 216
Depreciation and Amortization 257 225
Provisions For Losses On Accounts Receivable 9 9
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable 245 225
Inventories 175 (464)
Prepaid Expenses and Deferred Income Taxes 25 (58)
Accounts Payable and Accrued Expenses (335) (198)
NET CASH FROM (USED FOR) OPERATIONS $ 694 $ (45)
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
WATERS INSTRUMENTS, INC.
Note to Financial Statements
March 31, 1997
The financial statements have been prepared by Waters Instruments, Inc.,
without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The
information furnished in the financial statements includes normal recurring
adjustments and reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of such financial statements.
Certain information and footnote
disclosures
normally included in financial statements prepared in accordance with
generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate
to make the
information presented not misleading. It is suggested that these condensed
financial
statements be read in conjunction with the financial statements and the
accompanying
notes included in the Company's latest Annual Report.
The marketable securities included as cash equivalents on the balance sheet and
cash
flow statements meet the definition of cash equivalents set forth in
paragraph 8 and 9 of
SFAS95.
<TABLE>
<CAPTION>
Inventories consisted of the following:
<S> <C> <C>
March 31, 1997 June 30, 1996
Raw Materials $1,397,000 $1,518,000
Work-In-Process 278,000 253,000
Finished Goods 183,000 262,000
Total Inventories $1,858,000 $2,033,000
</TABLE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Requirements
The Company's working capital position at March 31, 1997, was $3,813,000, a 2%
increase from the $3,723,000 amount at June 30, 1996. The cash balance for the
Company was $1,354,000 at March 31, 1997, compared to the cash balance of
$964,000
at June 30, 1996.
In December 1996 the Company renewed the bank's $1,000,000 line of credit
commitment and extended it to December 16, 1997. The bank's line of credit
charges
interest at the bank's base (prime) rate. The prime rate was 8.5% at
March 31, 1997.
The Company had not borrowed against the line of credit during Fiscal Year
1997 and
believes that its' existing funds, cash generated from operations, and
short-term
borrowing under the Company's line of credit will be adequate to meet the
Company's
foreseeable operating activities and outlays for capital expenditures.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
Capital expenditures of $185,000 and $425,000 for the quarter and nine-month
period
ended March 31, 1997, respectively, were used to replace the plant's roof and
purchase
manufacturing equipment. The Company estimates that capital expenditures for
the
remaining quarter of the current Fiscal Year will approach $50,000 in total.
The
Company anticipates continued improvements in its manufacturing processes as a
result
of these capital expenditures.
Results of Operations
Net sales for the quarter and nine-month period ended March 31, 1997, were
$3,570,000
and $10,083,000 respectively. This represents a decrease of 1% for the
quarter and an
increase of 3% for the nine months ended March 31, 1997, when comparing to the
comparable periods of the prior year.
Waters Medical Systems' net sales for the quarter and nine-month period ended
March
31, 1997, were $446,000 and $1,287,000 respectively. This represents a
decrease of 1%
for the quarter and 16% for the nine months ended March 31, 1997, when
comparing to
comparable periods of the prior year. The decrease in sales is principally
due to
softening in demand for the existing mature medical products in this
business unit. The
Company submitted the RM3 to FDA on April 28, 1997. The RM3 is a computer
enhanced version of the MOX Renal Transplant System. The Company
anticipates sales
of the RM3 to begin in July 1997 pending FDA approval.
Net sales for American FarmWorks for the quarter and nine-month period ended
March
31, 1997, were $2,277,000 and $6,345,000 respectively. This represents a
decrease of
1% for the quarter and an increase of 2% for the nine months ended March 31,
1997,
when comparing to the comparable periods of the prior year. Considering the
current
strong agricultural economy, the Company anticipates higher revenue levels
in the fourth
quarter of Fiscal Year 1997 than the comparable periods of the prior year for
this
business unit.
Waters Technical Systems/Waters Network Systems (WTS/WNS) had net sales for the
quarter of $847,000 and $2,451,000 for the nine months ended March 31, 1997.
This
represents a decrease of 2% for the quarter and an increase of 21% for the
nine months
ended March 31, 1997, when comparing to comparable periods of the prior year.
The
decrease in net sales for the quarter ended March 31, 1997, is principally due
to the one-
time order received from a current customer in the prior year. During Fiscal
Year 1995,
Waters Network Systems began manufacturing and marketing a wide range of
connectivity products for Token-Ring and Ethernet LANs, designed specifically
for
school systems. The products offer the ability to network computers throughout
school
systems. The Company continues to invest in sales and marketing to provide
long-term
sales growth in these business units.
Net income for the Company for the quarter ended March 31, 1997, increased
23% for a
profit of $136,000 or $.09 per share on revenues of $3,570,000. For the
comparable
quarter of the prior year, the Company had a profit of $111,000 or $.08 per
share on
revenues of $3,623,000.
Net income for the Company for the nine-month period ended March 31, 1997,
increased
47% for an income of $318,000 or $.22 per share on revenues of $10,083,000.
For the
comparable nine-month period of the prior year, the Company had a net income of
$216,000 or $.15 per share on revenues of $9,792,000.
Forward-Looking Information
The statements included in this report which are not historical or current
facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
the Private
Securities Litigation Reform Act of 1995. There are certain important factors
that could
cause results to differ materially from those anticipated by some of the
statements made
herein. Investors are cautioned that all forward-looking statements involve
risks and
uncertainty. Some of the factors that could affect results are the
effectiveness of new
product introductions, the product mix of our sales, the amount of sales
generated or
volatility in the major markets, competition and general economic conditions.
<PAGE>
PART-II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 Financial Data Schedule (submitted only in electronic format).
(B) No report on Form 8-K has been filed during the period covered by this
report.
In accordance with the requirements of the Exchange Act, the Company caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WATERS INSTRUMENTS, INC.
By: /S/ Jerry Grabowski
Jerry W. Grabowski
President & CEO
May 14, 1997
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<PERIOD-END> Mar-31-1997
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0
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<OTHER-SE> 5270
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</TABLE>
